Taiwan Semiconductor Manufacturing Co. tempered its outlook for 2023 capital spending, as the main chipmaker to Apple Inc. grapples with soft demand for smartphone and computing chips.

Its capital expenditure should wind up closer to the bottom end of a previously forecast US$32 billion ($43.16 billion) to US$36 billion range, Chairman Mark Liu told reporters after hosting the firm’s annual shareholders’ meeting on Tuesday. TSMC reaffirmed projections for revenue in the first half of 2023 to decline by about 10% in US dollar terms.

The more moderate projection suggests TSMC, like its rivals across the electronics industry, remain cautious in the face of a cratering in consumer spending and an uneven post-Covid Chinese economic recovery. The Taiwanese chip linchpin has said previously semiconductor demand is likely to improve in the latter part of this year, after PC, server and smartphone makers digest inventories.

Shares of ASML Holding NV and other European semiconductor equipment makers fell more than 1%, helping make the technology sector the region’s worst performer in early trading.

One big question TSMC and its peers face is the extent of the global tech slump and whether China’s economy will bounce back strongly after dropping Covid Zero controls. The company reaffirmed on Tuesday it expects a low- to mid-single-digit revenue decline in 2023 — about in line with estimates.

“The company is undergoing an inventory adjustment period, but customers are lowering their inventories and we are seeing recovery in some end markets,” Liu said. “We may see our sales drop slightly this year, but our company is ready to capture strong growth starting next year.”

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On Tuesday, Liu talked up TSMC’s longer-term prospects while expressing confidence about a broader 2024 sector recovery.

The world’s most advanced chipmaker, the main partner also to AI chip designer Nvidia Corp., foresees a proliferation of AI services on mobile devices driving demand for the advanced chips that train and host those apps. For starters, TSMC intends to double its advanced chip packaging capacity, Liu told reporters.

Investors are betting on TSMC becoming a heavyweight in the global race to develop next-generation AI. Top customer Nvidia’s chips are essential to ChatGPT, autonomous driving and a new generation of AI products. The US firm’s valuation briefly surpassed US$1 trillion last week thanks to Wall Street’s obsession with generative AI, propping up the fortunes of TSMC and other electronics firms that supply the infrastructure needed to train large AI models.

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“Demand from AI is very exciting,” Liu said. “In 2022, sales from high-performance computing surpassed smartphones for the first time. The rise of generative AI will firm up that trend.”

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Liu also spent time deflecting concerns that growing Chinese aggression might jeopardize its prospects. The Taiwanese company still keeps its most advanced manufacturing at home, despite US warnings that Beijing might decide to invade and try to retake an island it considers its own. US and Chinese officials exchanged barbs at the Shangri-La defense forum in Singapore, underscoring growing divisions over the basics of the global order.

To mitigate concerns from customers over geopolitical uncertainties in the Taiwan Strait, TSMC has been diversifying its manufacturing footprint over the past two years. It is investing US$40 billion to create two fabs in Arizona and constructing an US$8.6 billion facility in Japan with financial support from the government.

The company remains in discussions with Tokyo over subsidies for a second facility, which might be located alongside its current plant in Kumamoto, Liu said Tuesday. It’s also in discussions with the Berlin government about a complex in Germany and some customers are likely to obtain a minority stake in the site, he said.

“TSMC aims to further secure customers’ trust with overseas diversification,” Liu said.

TSMC tempers capex outlook to US$32 bil as chip demand weakens

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